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It's widely known that people are living longer than they used to, but what
exactly does that mean to you? Assume that a couple makes it to age 65
together. Statistically they have an eighty five percent chance that at least
one of them will live another twenty years.

Studies have shown that the average joint life expectancy is age ninety two
(half will live longer). This means that your money will need to last a
long time.

Small mistakes early on can compound and become large mistakes over many
years.

2. Watch Out for Inflation

For the past several years, inflation has been practically non-existent.
Inflation now, however, is a different story. Inflation is quickly rising.
I'm sure that you remember the late 1970s and early 1980s when being on
a "fixed income" was the kiss of death.

With inflation and prices rising each year, a fixed income bought less and
less every year. At just 6% inflation, prices double every 12 years. When
you think about spending close to 25 years in retirement, you can expect prices
to double twice. That means you need four times the income to maintain your
standard of living at the end of retirement compared to the beginning of your
retirement.

Inflation is like a stealth missile that you don’t see coming until it
explodes in your face.

3. Expect to Spend a Lot of Money on Healthcare

Did you know that every year, Fidelity projects how much a
married couple, age 65, should expect to spend on their healthcare over the
course of their retirement years? Fidelity assumes that each person is on
Medicare and also assume that no long-term care is needed.

How much would you think this hypothetical married couple
would spend on their healthcare over the rest of their lives? Remember that
Medicare covers a lot of medical expenses.

The answer, according to Fidelity’s recent projection is
$240,000! That’s right, almost a quarter of a million dollars. That’s almost
$10,000 per year over 25 years of retirement.

If you need long-term care, it’s
a lot more expensive than that!

4. New Financial
Tools

When you were in the workforce, you probably had a
retirement plan that provided you with a variety of mutual funds in which to
invest. It was easy; you just pick the best performers and off you go.

Retirement plans are designed for growth and accumulation.
You use them to build up your nest egg so you can retire comfortably someday.

The problem is that when you retire the financial tools that
you’ve been using are no longer appropriate for the majority of your money. It’s
important to learn about new financial tools that focus on preservation and
income.

It’s like learning about investing all over again. For the
most part, you need to throw out 30 years of learning about one way to invest
and learn something different. This can seem daunting.

Remember that retirement represents a fundamental shift in
your life. It makes sense to recognize that such a shift should be reflected by
a fundamental shift in your investment portfolio.

5. Taxes, Taxes,
Taxes

Do you remember when you were working and had that
retirement plan meeting? Remember how the retirement guy told you how you
should save money today while you are in a higher tax bracket because when you
take it out later during retirement you’d be in a lower tax bracket?

Well, for many retirees, that doesn’t turn out to be the
case.

Many retirees are finding themselves paying more tax today
than they did while they were working.

Why? It’s really quite simple-because
they actually did a good job saving for their retirement!

Imagine that you are getting ready to retire: As you
transition from working to retirement, do you want to be able to maintain your
standard of living?

But what about your deductions? No more kids in the house,
the house is paid for…your deductions are all gone.

So, you’ll have about the same income, with no deductions,
which is bad news for your tax bill.

Now compound that with required minimum distributions from
fully taxable retirement accounts and you have an equation that works really
well for the IRS but not well for you.

Now you can recognize that taxes are a real threat to a
retiree’s standard of living.

SUMMARY

In summary, these are five of the factors necessary to take
into account when planning for your retirement income. Are you starting to see
some of the challenges?

There are even more factors that come into play, adding to
the complexity of your retirement income planning.

50 Comments to 5 Things You Need To Know About Planning Your Retirement Income :

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